Gold Prices Gain Despite Firmer Dollar (Update 1)

Gold prices shrugged off a stronger U.S. dollar Thursday and were trying to break through key technical levels.

NEW YORK ( TheStreet ) -- Gold prices shrugged off a stronger U.S. dollar Thursday and broke through key technical levels.

Gold for April delivery added $9.80 to close at $1,759.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,763.80 and as low as $1,743.30 an ounce while the spot price was adding $13, according to Kitco's gold index.

Gold prices were in somewhat of a holding pattern as investors waited for signs from Greece that it had reached a deal with private bondholders over interest rates on new debt. In the meantime, strong physical buying offset any damage inflicted by a stronger U.S. dollar.

Spain and France raised 4.5 billion euros and almost 8 billion euros, respectively, with lower yields at mixed demand. The dollar climbed on the news and was also supported by encouraging weekly jobless claims. Those filing for unemployment claims fell to 367,000 for the week ending January 28th, which was slightly better than expected.

The market is now gearing up for the Labor Department's latest read on the jobs picture Friday when it releases January's unemployment data. The jobless rate is supposed to fall slightly to 8.4%, according to Briefing.com, while the private sector is supposed to add 250,000 jobs.

A good number can mean a rush into riskier assets like stocks, which means investors leave the safety of the dollar, which in turn helps gold, but on the flip side gold might lose some of its shine as a safe haven asset. Any signs, however, that the job market is improving faster than previously expected might stir up rumors that the Federal Reserve would raise interest rates sooner than its target date of late 2014. If the Fed embarks on any monetary tightening, that would be negative for gold.

If the number disappoints, the dollar could rise, which would weigh on gold prices, but it would also back up the Fed's case that the economy is still weak and that looser monetary policy is needed. The longer rates stay at zero the more profitable it is to own gold.

"The opportunity cost for holding gold is zero ... when the rate on short term money is zero," says Leo Larkin, metals and mining analyst at S&P Capital IQ, " Gold is a hedge against what investors think will be the continued depreciation of currency."

Ben Bernanke, Fed Chairman, seemed to reiterate the Fed's commitment to an easy money policy during his testimony today at the House Budget Committee. He said "globally, economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in Europe," meaning that the Fed is focused on potential liquidity issues in the U.S.

The Bank of Japan could also be in the spotlight soon with the yen nearing record levels against the dollar which might force an intervention in the currency market. Attempts at currency devaluation could also highlight gold's roll as a safe hard asset.

In the meantime, gold prices could be torn between profit taking and technical trading. After rallying 11% in just January, some investors might be looking to book gains. However, the CFTC said in the latest bank participation report that 2,000 long positions were added in January but that there are still more than 161,000 short positions on gold, meaning that banks were still betting against a higher gold price.

"Over the past few months, we've see domestic and international bank continuously adding to their short position in gold," says Phil Streible, senior commodities broker at RJO Futures. "I would expect with the recent $100 move higher, the actions by the Fed and the inability for prices to stay below the 200 day moving average for any extended period of time, for them to start covering their short positions."

Mihir Dange, president at Arbitrage, says this is a pivotal time for gold. "Volume is a little lighter," he says, "it either means that the resistance will be support when we get through or gold will pull back from here." Dange has been waiting for a $100 move, but has yet to get a read on which direction the price will go. "It is important to keep a close eye on the situation."

Gold mining stocks were mixed Thursday. Kinross Gold ( ABX) was flat at $11.26 while NovaGold ( NG) was 8.42% lower at $9.46 after announcing an equity offering. The company increased the size of the offering to 35 million shares at $9.50 citing strong demand.